Sam Uretsky

The Know-Nothing Prescription Drug Plan

George W. Bush, the man who singlehandedly revived the Know
Nothing Party, has managed to create a social program with minimal
government expense. All that's required in the way of funding are the
livelihoods of a lot of small drug store owners, and the hopes of
Medicare recipients. Fortunately for congressional Republicans, this
was done without the need for congressional approval.

On July 12, President Bush, along with representatives of the
prescription benefit management companies AdvancePCS, Express
Scripts, Caremark Rx, Merck-Medco and WellPoint, announced a plan
whereby Medicare recipients would either buy or be given a card which
would entitle them to discounts on prescription drugs. As reported by
the New York Times, Tommy G. Thompson, the secretary of health
and human services, said he hoped the discounts would cut typical
retail prices by 15% to 25% or more.

The problem with the plan is that it violates the first two laws
of economics: (1) there's no such thing as a free lunch and (2) you
can't get blood from a stone. The idea is that so many people will
have these cards, pharmacies will have no choice but participate. The
fallacy is the notion that pharmacies are grossing enough on
prescription drugs to offer a 15-25% discount. They're not. The Bush
plan has no provision for government funding, or having the drug
manufacturers offer discounts on the cost of drugs; it only squeezes
pharmacies.

The companies that are participating in this plan have already cut
the profitability of prescription drug sales and can't understand why
the same technique won't work for a few million more people. This is
the same line of reasoning that believes the best approach to an
energy shortage is to drill for more oil -- without wondering what
happens when the wells run dry. The prescription plan which the
President of All the People presented was put together without any
input from elderly people, sick people, or pharmacies -- just
prescription benefit managers. It's hard to avoid the impression that
lobbyists from these companies sat down in the Oval Office, offered a
proposal, and the president, who has asked for further study on
regulations that would protect millions of people from on-the-job
injury, and billions from the effects of greenhouse gasses, jumped up
and said "Yessss! Let's do it!" without thinking of the consequences.
That would still be more reassuring than the alternative -- that he
understands the consequences and went with the plan anyway.

In the past, pharmacies took a mark-up on cost of goods sold,
typically 50%. On a straight mark-up basis, there was room for
discounts, particularly if they could be made up by increased volume
of sales. The Prescription Benefit Managers have generally replaced
mark-ups with fixed fees -- setting the fees arbitrarily, without
regard for costs.

This is significant, because when it comes to paying for pharmacy
services, cost of goods sold isn't taken into account. The fee, set
by the insurer, is the same regardless of the cost of the drug.
That's generally fair, since pharmacy is a profession, and the
cognitive work involved is the same, regardless of the cost of the
medication. Unfortunately, the fees are generally low -- in many
cases too low to cover the costs of staying in business.

While the benefit managers don't pay pharmacies on a percentage
basis, they evidently expect pharmacies to offer discounts by
percentage. A pharmacy that's selling drugs at a 50% mark-up on cost
may be able to offer percentage discounts. A pharmacy that's only
getting $2.50 over the cost of the medication normally doesn't have
enough profit margin to offer discounts. Many pharmacies only stay in
business because people prefer to buy their vitamins and sunscreens
at the same place they fill their prescriptions. Curious George
evidently feels he's done enough for retail pharmacy. By rejecting
the Kyoto agreements he's done wonders to promote the sales of
sunscreens.

The prescription plan has extra benefits for its member
corporations -- and none for anybody else. By setting up their own
formularies, the corporate sponsors can promote the sales of some
products over others. The sponsoring corporations offer mail-order
prescription services, and will have the option of offering these
services to their members.

In a press release issued on July 18, the National Community
Pharmacists Association announced that it was going to court to block
the Bush prescription plan. Among the points they made was:

* HHS set standards for the plan and anticipates spending several
million dollars to implement it without congressional authorization
to do so. The law specifically states that in order for HHS to set
standards and expend funds, they must have permission from Congress
to do so.

* The Federal Advisory Committee Act requires prior notice and
open meetings when developing a government program. HHS met neither
of these criteria during the development of the plan.

* By setting up the consortium to create, administer and enforce
the standards, HHS delegates all power to a private company, which is
unlawful.

What we really need is a well funded prescription plan for
everybody. It's the type of thing that could be funded out of the
federal surplus -- only it's already too late.